Tuesday, Sep 27 2011
• 10 a.m. (ET)

Postmaster General Patrick Donahoe

The U.S. Post Office is on the verge of defaulting on its health care fund obligations and may have to shut down entirely this winter unless congress intervenes. This according to Postmaster General Patrick Donahoe. He has proposed cuts to save the service, including ending Saturday delivery, closing hundreds of local post offices, and laying off nearly a fifth of the work force. President Obama recently presented his plans to save the institution, which backed a five day delivery week. The postmaster general discusses the future of the U.S. Postal Service and what it means to consumers.

Guests

Fredric Rolando
president of the National Association of Letter Carriers

Patrick Donahoe
the 73rd Postmaster General of the United States.

Program Highlights

The famous motto goes, neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds. But now, a financial storm could shut down Postal Service this winter. Earlier this month, Postmaster General Patrick Donahoe testified before Congress that the USPS needs emergency action to stabilize its finances.

Pre-funding Health Care Benefits

The postal service is forced to pre-fund its employees’ health benefits up to about 50 percent, which is one of the reasons for its current financial problems. “We floated the idea of taking over our own health benefits because if the first solution doesn’t happen, we have to get out from underneath this pre-funding,” Donahoe said. “We don’t know of any other private companies that pre-fund anywhere to the rate that we do.”

Getting the Post Office Back on its Feet

If nothing changes over the next few years, Donahoe estimates that the system will be in the hole by about $18 billion. He proposes taking the organization’s expense line down by about $20 billion between now and 2014. If that happens, the system will become profitable. But it would also involve laying off about 120,000 workers. Since 2000, the postal service has reduced its staff by about 250,000.

Where the Losses Are

“We are losing first-class mail at the rate of 7 to 8 perecent a year. First-class mail pays freight. The contribution we get from that product keeps the 33,000 post offices open. It keeps our 200,000-plus routes delivering six days a week,” Donahoe said. There is no substitution for first-class in terms of revenue generation, according to Donahoe.

Raising Prices on First-Class Mail

The problem with raising stamp prices is that this may cause more people to turn to online bill-pay and similar Internet services rather than mail. “The single piece where you and I would put a stamp on a bill, that’s probably less price sensitive. But when you change prices like advertising mail, people will either reduce the number of pieces they mail or go to the Internet. We can’t afford that,” Donahoe said.

Looking Ahead

“The postal service plays a very important role in American economy and society today, as we have for 200 years. There’s nothing in the near future that, I think will threaten that,” Donahoe said.

Transcript

10:06:55

MS. DIANE REHMThanks for joining us. I'm Diane Rehm. The famous motto goes, neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds. But now, a financial storm could shut down Postal Service this winter. Earlier this month, Postmaster General Patrick Donahoe testified before Congress that the USPS needs emergency action to stabilize its finances.

10:07:38

MS. DIANE REHMHe suggested a series of painful cost-cutting measures. Later in the program, we'll talk to the head of a postal union about those cuts, but now, joining me in the studio, Postmaster General Patrick Donahoe. Good morning to you, sir.

10:08:00

POSTMASTER GENERAL PATRICK DONAHOEGood morning, Diane.

10:08:01

REHMIt's good to have you here.

10:08:02

DONAHOEThanks for having me on.

10:08:03

REHMAnd I'm sure many of our listeners will want to join the program. Call us on 800-433-8850. Send us your email to drshow@wamu.org. Join us on Facebook or Twitter. And when you hear those words, Postmaster General, what do you think?

10:08:33

DONAHOEWell, it's different ways of communicating. People are changing habits. There's a lot of change in demographics. Younger people use Twitter and Facebook, and that has had some effect on our volume, but it doesn't really diminish the value of mail. We know mail is still a great way to get your message across.

10:08:51

REHMAbsolutely. But how close is the post office to default?

10:08:58

DONAHOEHere's where we stand right now. As a matter of fact, last night we saw that the Senate passed the continuing resolution, which is a good thing for us because what that does is it allows the government to push a bill that we have due on the 30th back about 60 days. We have to make a $5.5 billion payment to pre-fund retiree health benefits. And what the CR has done is allowed us to wait until the end of November before we have to make that payment.

10:09:27

REHMI want to ask you, first and foremost, about that pre-funding of employee health benefits. How did that come about? Explain what it is.

10:09:40

DONAHOEThe background is this, back in 2006, the -- there was a law change that was put into effect for the -- that was set up for the Postal Service going forward. The idea was not a bad idea to pre-fund retiree health benefits. It was the responsible thing to do at the time. Also, at the time, we were delivering 213 billion pieces of mail.

10:10:01

DONAHOEWhat's happened over the course of the last four years, between electronic diversion of first-class mail and the economic downturn, we've lost about 23 to 24 percent of our volume. What that's done is it has made this payment extremely hard. The idea behind the payment to start with was that -- if you look ahead with the Postal Service, right now we have about 460,000 people who are in our retirement plans.

10:10:27

DONAHOEAnd they get health benefits paid, to some extent. The Congress felt it was important to pre-fund while we still had good revenues coming in because, in the long run, if our revenues would go down, we wouldn't be able to make those payments. Problem is, the revenues went down faster than expected, and that's the situation we find ourselves in now.

10:10:45

REHMSo do you believe you should continue to pre-fund those health benefits?

10:10:54

DONAHOEHere's where we are right now. We have pre-funded to the tune of $42 billion. We have $42 billion in the bank with the federal government for this. What we'd like to do is to change our health benefits programs going forward.

10:11:06

DONAHOEWe've got a proposal in front of Congress and the administration right now that says move out of the OPM, Office of Personnel Management, health benefits plans that exist, let us take over our own plan, like any other company would. And, as a matter of fact, if we did that, we'd be able to go through a number of steps to eliminate the need to pre-fund any longer.

10:11:26

REHMSo you're in this awkward position of being under the federal government, but you want to behave as though you were a private corporation.

10:11:40

DONAHOEWell, it's kind of a combination of both. The government expects us to behave like a private corporation, too. We've got universal service mandates, but, at the same point, we take no taxpayer's money. We don't want taxpayer money. We are self-sufficient as an organization, want to stay that way.

10:11:56

REHMSo where does the $75 billion sit?

10:12:01

DONAHOEThe question, though, of the $75 billion that is overpaid into Civil Service, well, here's the situation. We -- the Postal Service has paid $196 billion into Civil Service. We are fully funded on our retirement health plans for both Civil Service employees and the newer retirement system, Federal Employee Retirement System.

10:12:23

DONAHOESo we're probably one of the only companies in the United States that's fully funded, along with another $42 billion that we've pre-funded for health benefits. So we're in very good shape that way. There is a discrepancy, or an argument, that says, in fact, we've overpaid into Civil Service by an additional $75 billion.

10:12:42

DONAHOEWhen I say a discrepancy or an argument, some people say we have, some people say we haven't. And so I am -- my feeling on the whole thing has been this. There's been discussions of using that money to move across to pre-fund the retiree health benefits and eliminate that payment. We're fine with that if the Congress wants to move in that direction.

10:13:05

DONAHOEWe floated the idea of taking over our own health benefits because if the first solution doesn't happen, we have to get out from underneath this pre-funding. So I would propose we take the second route if we can't get the $75 billion.

10:13:18

REHMHelp me understand. Is there any other agency within the federal government that is forced to pre-fund health benefits in the same way that the post office has been charged with?

10:13:36

DONAHOEWe --- the only ones we know who have done any pre-funding is Department of Defense at about a 30 percent rate. We're funded right now at about 50 percent. There are no other agencies. We don't know of any other private companies that pre-fund anywhere to the rate that we do.

10:13:50

REHMSo if you were not forced to pre-fund, what would happen to all that money?

10:13:58

DONAHOEHere's the thing. Right now, the $42 billion that's already pre-funded, we would need that to cover employee health benefits going out in the future. That's critical that we have that. We do have, like I say, a second solution that eliminates the need for any additional pre-funding. That's one course that we could take.

10:14:17

DONAHOEOne way or the other, we have to move away from the pre-funding because with the volume loss and the revenue loss we've experienced, we can't afford that going forward. It will bankrupt us.

10:14:28

REHMSo what happens then to the current employees who would retire? Would they have those health benefits going forward?

10:14:39

DONAHOEYes. They have health benefits now. This whole -- the whole discussion is pre-funding for the future. And what we're looking to do is approach it in a different way as far as changing the way we actually -- what is the basis for the pre-funding. Just to give you an example, one of the things we've looked at with our own plan is this, if you run your own health plan in the private sector, you have people who are required to use Medicare.

10:15:07

DONAHOEThe Postal Service today does not require retirees to use Medicare. Eighty-four percent of our retirees participate in Medicare A, 67 percent in Medicare B. And by law, we're not allowed to participate in Medicare D, which is the pharmaceutical plan. Guess who is the second largest contributor to Medicare? The Postal Service.

10:15:30

DONAHOEWe'd like to take advantage of the money that we and our employees put into that system. And that's part of how you eliminate the pre-funding, using some of those other solutions.

10:15:38

REHMSo I've heard that President Obama is in favor of a five-day week service. How does he feel about this pre-funding argument?

10:15:51

DONAHOEWell, here's -- the White House has weighed in this way. They've said that the pre-funding at this point has to be addressed. They are not in favor of moving the $75 billion. They also have responded to our suggestions about taking our own plan over, saying that's an intriguing idea, but they're not ready to embrace that either.

10:16:12

DONAHOESo we've got -- what they're saying is, let's take a couple of years, eliminate the pre-funding, examine and look at all options and come up with the best solution. We're fine working with them on that proposal.

10:16:23

REHMAnd what about the Congress? What are they saying now?

10:16:27

DONAHOEYou've got a number of different approaches in Congress. There -- from the Senate, the Senate has looked at the pre-funding issue, moving money from the Civil Service overpayment. There are other people in the House who have said that shouldn't be done and that we should make other changes in our system in order to continue to meet our responsibilities to do the pre-funding.

10:16:49

REHMAnd what is the implication of the continuing resolution? Are you expected to begin to resolve this issue?

10:17:01

DONAHOEThere's a lot of interest right now. We're very thankful that the administration has weighed in. That sets a good framework up.

10:17:08

DONAHOEThere is a lot of activity going on right now in both the House and the Senate on both sides of the aisle. So everyone understands that we've got to get this resolved. I think what happens with the CR timeframe, that gives us a couple months to get legislation pushed through and taken care of in time before the end of the calendar year.

10:17:26

REHMPatrick Donahoe is the 73rd postmaster general of U.S. He's a 35-year postal veteran. Tell me how you got started.

10:17:39

DONAHOEI got started in Pittsburgh, Pa., working the afternoon shifts, starting in 1975, Diane.

10:17:45

REHMDoing what?

10:17:46

DONAHOEI was sorting mail and worked in the afternoon shift, and I was going to school at the University of Pittsburgh in the morning. So morning at school, jumped in the car, drove down to the post office and worked from 3 to 11:30 every night.

10:17:59

REHMHow did you manage that?

10:18:00

DONAHOEI missed most of the '70s.

10:18:05

REHMAnd married with a family?

10:18:07

DONAHOEMarried in '77 after I graduated from school, and I've got a wife and two sons. My sons are 29 and 25.

10:18:15

REHMSo you really have worked your way up through the ranks.

10:18:19

DONAHOEYes, I've been -- it's been very interesting career. And it's a great place to work. And a lot of good things have come of the career, both personally and for the work that we do for the American public.

10:18:31

REHMPatrick Donahoe, postmaster general of the U.S. We'll talk further, take your calls. I look forward to hearing from you.

10:20:03

REHMIf you've just joined us, the postmaster general of the U.S. is here in the studio. He is a 35-year postal veteran. His name is Patrick Donahoe. And right now, he is facing lots of challenges. Tell me about the cuts that you are proposing to try to get over this hurdle.

10:20:31

DONAHOEHere's the situation we face, Diane. If we do nothing over the course of the next few years -- I'm talking three or four years -- we will be in the hole from a net income standpoint by about $18 billion. What we're proposing between now and the end of 2014 is to take our expense line down by $20 billion.

10:20:56

DONAHOEAnd that's a combination of some legislative activities, resolving this retiree health benefit payment and moving from six day to five day, some internal network, things that we can control, reducing the number of facilities, reducing the number of post offices, and working with our unions going forward on more flexibility within the contracts and along with some additional, what we call, non-personnel cost reductions.

10:21:21

DONAHOEBut all told, we take the $20 billion out, we would become profitable. We'd get back on our feet financially and be in good shape and then stable going into the future.

10:21:31

REHMYou're talking about laying off as many as 120,000 workers. That's tough.

10:21:40

DONAHOEWe have reduced the headcount in the Postal Service by almost 250,000 people since the year 2000. Our people have done a great job. They've been very productive, and they've done a very good job in tough, trying circumstances 'cause, as you make these changes, you're constantly having to change the work and the work locations where people are at.

10:22:00

DONAHOEWe've put this proposal forward in what we call white paper to Congress, saying we could lay off up to that number of people. Hopefully, what we'd be able to do is we work through these changes, working with the unions, working with Congress. There are some other solutions there, as far as kind of a -- what we could a soft landing for people.

10:22:18

DONAHOEWe've -- what we've been able to do over the course of time with the headcount reduction is do it all through attrition. And we're very proud of that.

10:22:25

REHMYou know, I -- every year, as the rounds of base closings occur, you hear protests from every part of the country where these bases are. Think about what you're facing as you close post offices that are far more personal to people. I mean, what is it going to mean to tiny communities who had just one tiny little post office to go to?

10:23:01

DONAHOEYeah, we're working through that right now. It's -- what we're trying to do as we make these changes is to improve what we call access, and that's -- a lot of these post offices are open two, three, four hours a day. And what we're looking to do is to work with, say, a local store under contract, and then you'd have a seven-day access (unintelligible) ...

10:23:19

REHMSo you'd have a grocery store that takes over?

10:23:22

DONAHOEDo the work for us, yes. And the town would keep its name. The town would keep its zip code. But we are very understanding and sympathetic to people's concerns. And, from a positive standpoint, we're very happy that people still worry about the Postal Service. That's why we've got to figure out how we get all of these issues resolved to the best of our ability without negatively hurting our customers.

10:23:46

REHM'Cause we all love the mail.

10:23:48

DONAHOEYes. Thank you. We're happy for -- to hear that.

10:23:50

REHMYou know, Republican Congressman Darrell Issa has proposed a bill that would create an emergency oversight board to recommend cost-cutting ideas. How do you feel about that?

10:24:05

DONAHOEWell -- and I've said this to Chairman Issa -- I think that it's our responsibility to do what we need to do ourselves from a standpoint of managing our networks and some of the other things that we do. We need to make sure that, from our own perspective, we address these issues first before we have somebody come in from the outside to tell us what to do.

10:24:32

REHM'Cause you're worried about what that might mean.

10:24:36

DONAHOEWell, you never know what -- if you put your fate in somebody else's hands, you never know what the outcome would be and if -- especially if it's people that do not understand the needs of the customers and what happens from an employee standpoint. You could have some things happen that would not be in everyone's best interest.

10:24:53

REHMA decade ago, the Postal Service had nearly 900,000 employees. How many do you have now?

10:25:05

DONAHOERight now, we have about 559,000 career employees and another 90,000, what we call, non-career people who work generally on Saturdays in some of these small post offices. So we're substantially smaller than we were 10 years ago.

10:25:19

REHMAnd if layoffs had to happen outside attrition, will that hurt African-Americans more than any other part of the employee base?

10:25:38

DONAHOEI'm not sure that that would have any specific -- we employ about 20 -- 22 percent of our workforce is African-American. I don't know that there would be any larger percentage that way or not. Again, it's our goal to try to move towards additional attrition. We have 157,000 people that can retire right now, full retirement.

10:26:02

DONAHOEAnd we've got another 100,000 in the next five years that would be eligible. So working through a number of potential options, we think that we can move a lot of people off the rolls that way.

10:26:11

REHMAre those postal employees eligible for Social Security?

10:26:18

DONAHOEIt depends. We have two retirement plans. One retirement plan person wouldn't be eligible for Social Security, but they -- it's a pretty reasonable retirement when you leave. Let's say you have 35 years, like me. You'd be able to leave at about 60 percent of your pay. Our second plan is a little less generous from a standpoint of retirement, but you would also be eligible for Social Security 'cause you've had to pay into it all these years.

10:26:45

REHMAll right. And now joining us by phone is Fredric Rolando. He is president of the National Association of Letter Carriers. Good morning to you, sir.

10:27:00

10:27:01

DONAHOEHey, Fred.

10:27:01

REHMI'm fine, thank you. You, I gather, think that the media and the public are misinformed about the problems with the post office. Explain what you mean.

10:27:17

ROLANDOWell, yeah, thanks for that opportunity. What we hear over and over is that the Postal Service is broke. They're obsolete. They're looking for a bailout and so forth. And I think it's important that the public understand that, in fact, the Postal Service is nowhere near broke, certainly not obsolete and by no means looking for any kind of taxpayer bailout.

10:27:38

ROLANDOAs Pat indicated, we haven't used a dime of taxpayer money in almost 30 years, so we're not talking about any tax funds whatsoever.

10:27:47

REHMSo how do you think those stories get started?

10:27:51

ROLANDOWell, I think they're pretty easy to -- you know, they make headlines. Postal Service is broke, obsolete, looking for a bailout. You can do it in one sentence.

10:28:01

REHMBut, wait a minute, surely that doesn't come out of the head of a reporter. Isn't it coming from members of Congress?

10:28:13

ROLANDOI think it's the same problem. I think it's a matter of educating people. If you look at the last four fiscal years of the Postal Service, operationally, they made almost $700 million. All of the reported losses that we read about and that congressmen speak of are solely from the pre-funding payments that have been required during that time, which totaled about $21 billion.

10:28:38

ROLANDOSo it was a matter of -- basically all the cash was drained out of the Postal Service operating budget to put into this fund.

10:28:46

REHMAll right. So now, this afternoon, there are number of rallies across the country being held by postal workers. What are you hoping that these will do?

10:29:00

ROLANDOBasically, what we want to do is we want to thank the members of Congress. We're holding these rallies in every congressional district in the country this afternoon to thank the members of Congress that are supporting bills that would help the Postal Service and encouraging those that are not co-sponsors to co-sponsor those particular bills.

10:29:20

ROLANDOAnd, specifically, we're addressing Congressman Lynch's H.R. 1351, which would address the surplus in the Civil Service fund. And we're basically just out to thank the congressmen and to inform the public of what's going on. We're going to have handouts for the public to explain the financial situation of the Postal Service.

10:29:42

REHMSo you think that the public is literally being misinformed, that we quite -- don't quite get it as far as the clearer situation you're in. Why then are the postmaster general, the president of the United States and members of Congress asking for a five-day postal delivery service?

10:30:14

ROLANDOWell, I can't speak for all of them. But I think a lot of people are assuming that if Congress doesn't act responsibly or doesn't act at all or if nothing is done to adapt to the needs of how Americans are using the Postal Service, that that's the answer -- and I think that's where Pat and I tend to disagree -- is I think we need to concentrate on not only the Congress giving the Postal Service access to their own money, but we then have to look ahead and figure out how we can adapt the existing networks to how the nation uses the mail rather than starting to dismantle the Postal Service. You know, the...

10:30:54

REHMGive me an example of what you mean by adapting the existing service.

10:31:01

ROLANDOSure. For example, the Internet certainly brings challenges to what we do, but it also offers a lot of opportunities. People are shopping online now, which opens up the opportunity to deliver what they buy door-to-door, the last mile delivery. FedEx and UPS also -- one of their fastest growing divisions is the division where they drop off packages to the Postal Service for residential delivery because it's a good deal for them.

10:31:32

ROLANDOIt's a good deal for us. We go to every house every day. They may go to every 50th house, every 500th house. That's just an example of how the Internet would offer an opportunity.

10:31:42

REHMSo wait a minute. Explain how that last mile delivery would work.

10:31:51

ROLANDOWith regard to the other companies?

10:31:52

REHMYeah.

10:31:53

ROLANDOYeah, what they do is they drop the parcels off at postal services, and we do the last mile delivery at the post office.

10:32:03

REHMAnd you think that -- then that would be a cost-sharing endeavor?

10:32:11

ROLANDOWell, yeah. I think if we can expand the last mile delivery, we do it not only for them but other delivery companies. It just makes sense because we can do it much cheaper.

10:32:19

REHMOkay. And let me ask you, Fredric, what you think would happen to future retiree health benefits if that requirement to pre-fund is ended.

10:32:36

ROLANDOWell, as Pat indicated, there are no other federal agencies or companies that are required to do that. We're the only ones to do it. What we're essentially doing is pre-funding future retiree health benefit premiums for a 75-year period for people that may not even work for us yet, in some cases, for people that aren't even born yet.

10:32:55

ROLANDOWe're double-funded, of any corporation that voluntarily does it, percentage wise, so I don't see any adverse effect in allowing the Postal Service access to the amount of money that's in that account that's over and above what anybody else is required to do.

10:33:15

REHMFredric Rolando, he's president of the National Association of Letter Carriers. And you're listening to "The Diane Rehm Show." I'd like to ask each of you, starting with you, Fredric, what you believe would be the effects of losing Saturday service.

10:33:40

ROLANDOWell, I think it would adversely affect a lot of residents, a lot of businesses. I don't think it makes good business sense to eliminate 17 percent of your service to save anywhere from 2 to 4 to 5 percent of your cost. I don't think any business would adopt that formula. I think it's dangerous because a lot of the growth that we would be looking for in the future involves the delivery of parcels, the last mile delivery. Saturday is the day that people are home.

10:34:12

ROLANDOI just think it's an opportunity for growth. It's our competitive edge having Saturday delivery. There's a need for Saturday delivery. If we don't do it, somebody else is going to step in and do it. And I just believe it puts the Postal Service in a bad business position for the future.

10:34:32

REHMAnd what about you, Postmaster General?

10:34:34

DONAHOEThe situation we face is this. We will keep our post offices open on Saturdays, so we will -- customers will have access. They'll also have access to post office box delivery if they need packages or mail delivered. We'll also run our networks so that things that you put in the mail on Friday night will go to our system and be delivered on Monday. So with the -- what we would propose to eliminate is the Saturday delivery.

10:35:03

DONAHOEBelieve me, we don't take this lightly. I agree 100 percent with Fred that this is a very good part of our service, and it's something that we're the only ones that do. But the facts are this. We are losing first-class mail at the rate of 7 to 8 percent a year. First-class mail pays the freight. The contribution we get from that product keeps the 33,000 post offices open. It keeps our 200,000-plus routes delivering six days a week. And you have to make some choices.

10:35:30

DONAHOEThere's no substitution for first class. We can grow the package business. We're growing it double digit. We're also growing standard mail. But that -- the revenue and volume from that does not make up with what we lose on first class. And when you look ahead, it gets worse. And we've got to be making some responsible decisions.

10:35:48

REHMWhat should the price of stamps be, a first-class stamp?

10:35:53

REHMRight now, it's 44 cents, and we're looking probably next year to see it go up another two cents. When you compare us to other countries, we are a bargain. I mean, Germany, it's, like, 75 cents. Canada, it's 60 cents. It's a bargain 'cause our people have done a very good job keeping the price low with the good productivity on their part.

10:36:10

REHMIf you try to raise the price of stamp to 50 cents, what would happen?

10:36:18

DONAHOEWell, it's my fear that the more you raise prices, the more you move people to alternative delivery, like the Internet. The single piece where you and I would put a stamp on a bill, that's probably less price sensitive. But when you change prices like advertising mail, people will either reduce the number of pieces they mail or go to the Internet. We can't afford that.

10:36:41

REHMFred, from the carrier's perspective, what would eliminating Saturday delivery do for carriers on Mondays?

10:36:53

ROLANDOWorkload wise, yeah, Mondays would be extremely busy, yes. They're already busy after a holiday when you look at the number of holiday weekends we have. It would be pretty busy, but we could handle it. I think the bigger fear is once you start to go down that road, depending what direction the Postal Service goes in, with looking for new avenues of revenue, what's to stop them from then eliminating Tuesday delivery or Thursday delivery?

10:37:22

ROLANDOAnd before long, you've just -- you're not accomplishing the mission of the Postal Service for the American people anymore.

10:37:29

REHMFredric Rolando, he's president of the National Association of Letter Carriers. Here in the studio, Patrick Donahoe. He's postmaster general of the United States.

10:40:03

REHMAnd let's go right to the phones to Walled Lake, Mich. Good morning, Richard. You're on the air.

10:40:12

RICHARDThank you, good morning.

10:40:13

REHMMorning.

10:40:14

RICHARDI was just explaining to my wife what I was going to talk to you all about. Well, this is frustrating to me because it seems that the solution is real simple, and it's being ignored. The 2005 bill said you have 40 years to pre-fund. A year later, 2006 comes along, and some knucklehead makes it 10 years. Now, what we have here is this immense polite fiction that, you know, we have to accept this ridiculous requirement.

10:40:49

RICHARDArticle 1 Section 8 of the Constitution says we establish -- that Congress establishes a post office. If they're trying to eliminate the post office, they're going to either have to have an act of Congress, going to have to have amendment to the Constitution -- none of which is going to work. So the question is with this -- why do we have to accept this enormous polite fiction that we have to do this in 10 years?

10:41:14

10:41:22

REHMAll right, Richard. How do you feel about that?

10:41:25

DONAHOEWell, Richard is correct, and that's exactly what happened. When the bill was originally -- the idea of the original bill was to pre-fund over 40 years. And what happened was it was almost like signing up for a 40-year mortgage and getting it back in the mail and say you have to pay it in 10 years. And that's what's called a scoring issue with Congress, which we can take a whole hour to discuss. So I'll stay away from that one.

10:41:45

REHMBut who did that, and who pushed that?

10:41:48

DONAHOEIt was a requirement by the Congressional Budget Office that the fact that you can only score over a 10-year period on a bill like that.

10:41:57

REHMI see.

10:41:58

DONAHOESo that's what -- that was the requirement. The thing going -- the thing that we are concerned about going forward is -- there's a couple of things. Number one, we want to make sure that we're responsible with the retiree health benefits. That's why we proposed our own solution around having our own health care system, which eliminates pre-funding and also still provides excellent benefits for the employees.

10:42:20

DONAHOEThe other problem we have going forward, I think, is the volume issue that I spoke about earlier. I agree 100 percent with the caller. The Postal Service is very important. We'll not be eliminated. But what we've got to do is make some changes so that we can stay in good financial plan.

10:42:33

REHMHow sure can you be that, in fact, what the current Congress doesn't want to do is simply to eliminate the post office?

10:42:46

DONAHOEThis year we will deliver 165 billion pieces of mail. We will also, to Fred's point earlier, be delivering a substantial number of packages for FedEx and UPS. The Postal Service plays a very important role in American economy and society today, as we have for 200 years. There's nothing in the near future that, I think, will threaten that.

10:43:08

REHMFred, how convinced are you?

10:43:12

ROLANDOWell, there are certainly members of Congress that would love to see the Postal Service destroyed, that don't care for government, especially a successful agency like the Postal Service, that don't care for decent middle class jobs or labor unions or anything else that the Postal Service stands for.

10:43:30

ROLANDOAnd they would probably love to see it dismantled so that they can pick and choose and privatize it for corporate profit rather than to serve the American people like it was intended. So, yeah, there are certainly members of Congress that feel that way. But, as Pat said, I mean, it's so much more than about the Postal Service.

10:43:49

ROLANDOThe Postal Service is a cornerstone for a $1.3 trillion postal industry affecting nearly 9 million workers in associated industries. So it's much bigger than us.

10:44:03

REHMWe've had several emails like this one from John in McLean, Va., who says, "Could you, please, ask the postmaster general to discuss the role of bulk mail in his business model?"

10:44:22

DONAHOEBulk mail, or what we call advertising mail, is the largest percentage of volume we deliver today.

10:44:28

REHMAnd it's got bigger and bigger.

10:44:30

DONAHOEIt's get bigger and bigger. The thing of it is, is that...

10:44:33

REHMI can hardly wait for Christmas. I'm telling you.

10:44:35

DONAHOEGood. It's the -- but you know what? It is the most effective way to advertise. The return on investment for direct mail or advertising mail is better than the Internet, better than the TV, even better than radio. And -- but it's the most direct way to get in front of a customer's eyes. And it grows, and we know that there will be value on that going out to the future.

10:44:58

REHMHow do the carriers feel about bulk mail, Fred?

10:45:02

ROLANDOHow do we feel about bulk mail?

10:45:04

REHMYeah.

10:45:04

ROLANDOOh, the same way we feel about all mail. We treat every piece of mail like it's our own. It's very personal to us, and we just -- anything that brings revenue to the company, so we could continue to serve the people.

10:45:17

REHMAll right. To Naples, Fla., good morning, Paul.

10:45:22

PAULHi. I got just a couple of quick questions for the postmaster general.

10:45:26

REHMSure.

10:45:26

PAULHe's on the radio taking calls and emails from people. Now, didn't that, at some point, cut in to the Postal Service's business? I heard him last time he was on NPR saying that he mailed all his bills. That's fine but, you know, (unintelligible).

10:45:41

REHMSo do I, by the way. So do I.

10:45:44

PAULWell, he's complaining that new technology is cutting into part of his business model. I mean, isn't this doing it? The phones didn't eliminate the Postal Service. And my second question is -- I just got back from the Postal Service actually. I build small electronic project and use flat rate boxes to mail them out to people because it's so cheap, and I don't have to worry about weighing.

10:46:08

PAULMy question is -- you guys do a lot of stuff great. What is your plan to accentuate what you do very well and downplay some of the things that, I think, are, frankly, being replaced, like a lot of first-class stamps?

10:46:26

DONAHOEWell, from a first-class stamp situation, that is -- that's a major threat. Phones, telegraph -- there have been many other potential substitutions. But what we've found here with the Internet, you know, it has been very easy for people to move, to pay bills online. And that's what's really affecting the first class volume. And it's, to a large extent, a generational thing.

10:46:49

DONAHOEIf you're comfortable growing up with a smartphone or a computer to do those kind of things, that's going to happen. From a standpoint of growth, a couple of things are going on right now. Number one, we think that there's big opportunities in a product we recently came out with called Every Door Direct.

10:47:07

DONAHOEAnd it's a very simple product that you can go right online, actually pick out the delivery routes that you want to deliver on, package your mail up, bring it in, give it to us. You don't have to worry about addressing. Our letter carriers do a great job delivering it the day after you bring it in. We've made, over the course of the last five months, about $75 million in business on that. So customers see the value, and it's definitely growing.

10:47:29

DONAHOEWe have great opportunities still with the package business. And some of the other things we're looking at is the -- is our role in the digital world going forward. We think what we provide from both a secure and a trusted third-party perspective, from a Postal Service standpoint, there is a secured digital messaging in the future that needs to have somebody that can provide that trust that you don't have in the systems right now.

10:47:56

REHMHere's an email from Ryan in New Hampshire. He says, "What about the multimillion dollar contract with Netflix? They threatened to cancel contract with the post office because they can't guarantee two-day delivery service with a five-day work week. That's a big contract." What about that, Fred?

10:48:25

ROLANDOWell, I understand their concern. I mean, with five-day delivery, that's just one of the many businesses -- I mean, think in terms of the pharmaceuticals and so forth, the people that depend on Saturday delivery. It's a major concern with the thought of cutting back to less than six-day delivery.

10:48:42

REHMSo are you going to fight that, Fred?

10:48:46

ROLANDOI'm sorry?

10:48:46

REHMAre you going to fight that?

10:48:49

ROLANDOThe five-day delivery?

10:48:49

REHMYou bet.

10:48:50

ROLANDOOh, yes. We're going to step up our efforts at all levels.

10:48:54

REHMAnd what do you think the reaction is going to be from the Congress?

10:49:00

ROLANDOWell, there is quite a few people in Congress that are not in favor of eliminating six-day delivery. We've got a resolution in the House of Representatives that's got almost 200 co-sponsors with regard to maintaining six-day delivery. So I think we've got quite a bit of support in Congress.

10:49:20

REHMAnd here's an email from Robert, who says -- he didn't tell me where he is, but he says, "Apparently, our local post office pays rent for the space it uses in a federal building constructed as a post office and federal courthouse. Why does the post office pay rent to the federal government? How widespread is this? If so, what does it cost the Postal Service yearly? I think it's absurd." Patrick.

10:49:57

DONAHOEWe own about 70 percent of the space that we operate in, and we lease about 65 to 70 percent of our facilities. So...

10:50:07

REHMFrom the federal government?

10:50:09

DONAHOENo, no. No, from many private citizens. Here's what happens. Most post offices are leased. Most large processing facilities are owned. So we spend a lot of money, about -- probably about $1.5 billion a year in rent for our buildings. And that's done primarily with public -- just citizens that happen to own those buildings.

10:50:32

REHMSo, for example, going back to what you were saying earlier, if you could locate a post office in a grocery store in a small community, would you pay for rental space there? How would that work?

10:50:52

DONAHOEWhat we do is -- what we're proposing would be to set a contract up with them. They could handle the whole business. That way, what you do is -- and to a large extent, the small grocery store, if you pay a couple thousand dollars a year, you'll cover their electric bill and make life easier for them, keeping those small grocery stores open out in the rural areas.

10:51:11

REHMAll right. To St. Louis, Mo. Good morning, Teresa.

10:51:17

TERESAHello. Hi. My question is about customer service. I've live most of my life in the Midwest. My father was a letter carrier. My aunt was a letter carrier. And it was a very important part of my life when I was a kid growing up to go to the post office and buy extra postage because we wanted to support the United States Post Office.

10:51:36

TERESAAnd today, I have struggled with a couple of branches in the Midwest, in the state of Illinois, Indiana, specifically, where the customer service was intimidating. And it wasn't a very pleasant experience.

10:51:51

TERESASo I was wondering if you could talk a little bit maybe about how -- if you are going to be going into the supermarket (unintelligible) small grocery stores or keeping the branches that you do have open, how are you going to manage customer service so that we can have a really good experience and pleasant experience and know that it's going to continue forward that way?

10:52:10

DONAHOECustomer service is critically important to us, whether it's delivery or if it's your personal experience at the post office or even if you use our call centers or our online services. It's an ongoing issue. You're exactly right. You always want to make sure that you are talking with the employees and emphasizing the importance of good customer service.

10:52:31

REHMBut you can talk to them. You can say to them you need to do this. But who's standing over them and watching? So often, I go into a local post office right around lunch time, when an awful lot of people go into the post office, and it's down to one line.

10:52:53

DONAHOEThat's something that we should never do, and that's something that -- and I will tell you. We constantly talk to our people about, if you're going to go on lunch, go on lunch at a different time than when your customers go on lunch so that you can provide great service.

10:53:06

REHMAnd you're listening to "The Diane Rehm Show." Here's an email from Walter in Chicago, who says, "I run a company that depends on using USPS for delivery because of its low cost. USPS takes a few days longer than UPS, which means that we field more calls asking, where is my package. Now, if you remove Saturday delivery, I don't know how we can keep using USPS without significantly increasing our customer complaints."

10:53:47

DONAHOEWell, that's something we've got to work through. Number one, from a standpoint...

10:53:49

REHMHow are you going to do that?

10:53:51

DONAHOEWell, it depends on when we take the mail in and how we work the mail through the system. If UPS and FedEx don't deliver on Saturday now, we -- when we do, and what we'd have to do is work specifically with that customer to find out what delays that he or she is experiencing and how to resolve those.

10:54:09

REHMTo Susan in Charlotte, N.C. You're on the air.

10:54:16

SUSANHello. Thank you very much, and good morning to both you and your guest.

10:54:19

REHMGood morning.

10:54:20

DONAHOEGood morning.

10:54:22

SUSANWhat I'd like to point out is that the Postal Accountability and Enhancement Act was passed by a Republican-controlled House, Senate and presidency. And I would have to ask why anyone would propose to ask a company to fund their health care pension 75 years in advance unless you're deliberately trying to get them to fail.

10:54:45

REHMFred.

10:54:47

ROLANDOWell, I think Pat touched on it a little bit earlier. It has to do with their internal scoring issues. Anytime they're dealing with -- even though it's our own money, if it's something they have access to, it's going to score. It's ironic that the payments began back in 2006, the $5.5 billion payments. That whole thing was set up as a scoring issue for about $17 billion that we received from surplus and the Civil Service fund.

10:55:16

ROLANDOAnd in order to give us that money, it was scored by setting up these payments. So it's really ironic that scoring is what got us in to this situation, as scoring seems to be what's preventing the Congress from fixing it. But, yeah, I couldn't agree with you more. It's absolutely ridiculous.

10:55:31

REHMAnd here's an -- a question from Carl in Kalamazoo, Mich., with a suggestion to help post office income. "It would be a natural for selling lotto tickets nationwide or selling ads on stamps." What do you think?

10:55:56

DONAHOEWell, there's been a lot of discussion over that over the years. Matter of fact, there are a couple of the bills that are in Congress now that allow us to get in to different products going forward, and we...

10:56:07

REHMA lotto even?

10:56:09

DONAHOELotto, I'm not so sure. I mean, there are certain things you worry about selling in your lobby. Maybe we should run our own lottery and make some money off of that.

10:56:17

REHMWell, perhaps. And, Fred, from your perspective, how much good do you think these demonstrations around the country today are going to do?

10:56:30

ROLANDOYou know, I hope they're going to get the attention of the public because, you know, letter carriers, the men and women I represent, are a part of every neighborhood in the country. They -- it's really personal to them because they know all the people.

10:56:45

ROLANDOThey know all the families were involved in so many things within the community, whether its the food drive or the carrier alert program or we're looking out for the elderly or the city readiness initiative, we're prepared to distribute medicines in the event of a biological attack or just the fact that we've got the privilege of being in the right place at the right time...

10:57:07

REHMAnd I've got to stop you there. But I want you to know I agree with you wholeheartedly. And I want to see the post office continue. Thank you both for being with us.

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